A report under section 125(4) of the Fair Trading Act 1973 on the advice given on 26 March 2002 to the Secretary of State for Trade and Industry under section 76 of the Act
Imperial Cancer Research Fund (ICRF) specialises in researching the prevention, treatment and cure of all forms of cancer. It pursues these aims, in the main, through its own teams of scientists. For the financial year ended December 2000, ICRF's gross assets (for both business and non-business activities) were estimated at £171.8 million and a total turnover at £135.6 million.
Cancer Research Campaign (CRC) has the objective of defeating cancer in all its forms. In contrast to the ICRF's strategy, CRC acts primarily as a grant making body, raising funds and distributing them to independent scientists. The researchers assign (in whole or in part) any intellectual property rights (IPRs) resulting from the funded research to Cancer Research Campaign Technology (CRCT), a wholly-owned subsidiary of CRC (see note 1). For the financial year ended December 2000, CRC's gross assets were estimated at £89.3 million (for both business and non-business activities) and a total turnover at £103.7 million.
The two charities have merged all of their activities into a new charity: Cancer Research UK, which was incorporated on 20 November 2001 and registered as a charity on 23 November 2001. ICRF, CRC and Cancer Research UK signed a binding and unconditional merger agreement on 10 December 2001 that took effect from 4 February 2002.
This transaction consists of the merger of two charities, both of which are non- profit making entities. This fact does not preclude the application of the merger provisions of the FTA 1973 (the Act). It is clear from the definition of a business in s.137(2) of the Act that the merger provisions of the Act may apply to undertakings whether or not they are operate for profit making. The stimulus of competition is important not only for profit-seeking businesses but also for non-profit seeking entities.
In the light of that definition (which refers to any undertaking carried on for gain or reward or the supply of goods or services otherwise than free of charge), certain fund-raising activities of charities (for example, collecting private donations and legacies) do not constitute a business for the purposes of the Act. Likewise, charitable activities that involve the provision of goods and services free of charge fall outside the scope of the Act. In this case, however, both charities carry on certain activities for gain or reward, for example, retailing activities and the licensing of intellectual property rights. These activities constitute businesses within the meaning of s.137(2) of the Act. Accordingly, the transaction would appear to result in two enterprises ceasing to be distinct.
The transaction appears to satisfy the share of supply test of the FTA with respect to the supply of retailing services in the cancer charity sector. The ECMR does not apply.
ASSESSMENT AND CONCLUSION
The parties' business activities overlap in four areas: retailing services, corporate sponsorship, commissioning of research, and the acquisition and exploitation of IPRs. Charities' retail outlets sell second-hand goods and, increasingly, new goods at the same quality and standards as high street goods. Post-merger, Cancer Research UK will have only a small share (less than 10 per cent) of all charity shops and will also face competition from non-charity retail outlets selling substitutable products.
Although the parties both engage in corporate sponsorship, this merger will result in little or no increase in their buying or selling power. First, the cancer charities are very minor buyers of services. Secondly, corporate sponsors can choose among a large number of cancer charities when concluding sponsorship agreements.
The commissioning of medical research and the acquisition and exploitation of IPRs takes place on a worldwide basis. Cancer research is conducted not only by cancer charities but also by governments and the pharmaceutical industry. Together, ICRF and CRC represent less than 1 per cent of cancer research funding worldwide. Accordingly, they commission a relatively small proportion of overall cancer research. In addition, the parties' ability to exploit anti-competitively any overlap in their IPR pools is likely to be minimal as the parties tend to be involved in different areas: ICRF focuses more on basic research whereas CRC is more active in the development of treatments and clinical trials. Moreover, the parties' charitable objectives may well result in their licensing IPRs at low royalties in order to ensure that the useful results of research are disseminated to a wide audience. And the merger offers efficiency gains. Far from being anti-competitive –the question for merger policy - the merger may well be pro-competitive in the field of research to combat cancer.
On these grounds we recommend that this merger is not referred to the CC.